Owners & CEOs – Don’t Fly Blind, Know What Your Instruments are Telling You
Current Conditions
In business, revenue is vanity, profit is sanity, and cash is reality. Cash is the lifeblood of any company, not revenue, and not profits. Your employees, your suppliers, your stakeholders are paid in cash, not revenue, not profits. With current expectations for commercial bank lending indicating a slowdown amid recession concerns, credit availability is weakening. Lending standards are tighter and interest rates are higher, so now, more than ever, leaders must understand their current and projected financial situation and what it will take to run operations efficiently through this cycle and beyond. This may mean shifting focus from capital raising to uncovering the capital already there.
Just Fly The Plane
There’s a saying in aviation when the flight comes under stress and a MAYDAY distress call is made…”JUST FLY THE PLANE!” Pilots are trained to disregard all the noise and panic, trust what their instruments are telling them, and just fly the plane. In business, the instruments are your financials, and they can tell you how to run your operations. Do you know what they are telling you?
Consider the following:
Do you have a plan to meet your growth goals or weather an economic downturn?
How much cash do you need to make payroll, service your debt, and meet operating expenses over the next three to six months?
Is your current bank line-of-credit sufficient to cover those needs?
Are you likely to default on a bank loan covenant in the foreseeable future?
Does your bank officer have the financial statements and other documents required by your loan documents?
Is leadership being kept informed of your business outlook and your preparedness to meet your growth goals or an economic downturn?
These are but a few questions that need answers before placing an order for more inventory or capital equipment, hiring additional staff, opening/expanding a facility, or making other financial commitments. Starting with some basic analyses can help a company get answers and pilot successfully.
Read the Instruments
Numerous financial tools exist to give a business information that will help to strengthen margins, adjust pricing, optimize operations, improve efficiency profitability, ROI, manage costs without damaging the business, and build a great company culture. There is an opportunity at hand for companies to create lasting success that capitalizes on strengths, mitigates weaknesses, and develops a more self-reliant growth strategy. Getting there requires auditing and analyzing to develop a plan that fixes what isn’t working and enhances what is. So, where do you start?
Financial information and analyses are vitally important instruments in business. You cannot successfully fly without them. Do you know how to read and interpret them? Do you know which ones are most relevant to the decisions at hand? Are you receiving insightful and actionable information from your finance and accounting team when you need it, or is it just financial statements and data spreadsheets?
If a pilot doesn’t know how to read the instruments, the plane will crash. In business, knowing which financial assessment tools to use, when to use them, how to analyze the data, and creating an actionable strategy from that information is crucial.
Some CFO favorites that can help make an impact include:
Income Statement (or Profit and Loss Report)
Balance Sheet
Statement of Cash Flows
Break Even Analysis
Profitability Analysis
Cash Flow Analysis
Cash Forecasting
Operational Analysis
Contribution Analysis
Contract Analysis
Shock Analysis
In-depth details about financial reporting that a company needs to run successfully is available for you to download below.
Avoid Turbulence
Like a pilot using aviation instruments to avoid turbulence, data from financial assessment tools can be used to create strategies to avoid problems, make improvements, and boost performance. Acting based on the findings is critical, especially for areas of waste within a company. Making data driven decisions for cost reductions, price increases, pinpointing operational improvements, long-term planning, and mitigating risks will ensure growth and sustainability for a company.
With the current volatility in banking, CFOs recommend short term strategies for growth that include:
Enhancing Company Culture – A strong company culture allows business to pivot quickly during tough times and adapt to foster continual growth. Culture starts at the top ,and the CFO can work with leadership across all areas to implement and ensure the vision is communicated and successful. James Emmons, CFO and Partner with Seaton Hill, has experienced some challenging, but necessary conversations around company culture and changes that need to be made, sharing that “CFOs sometimes have to be the ones to tell the CEO the hard truth about company culture.”
Financial Reports Training – get professional training for leadership to understand financial reports and what to do with the information.
Cash Flow – Make sure cash leads the focus, it is more important than revenues and profits. Cash is the lifeblood of the company.
Current Cash Projection – To manage cash flow, obtain a current cash projection and implement consistent, timely reporting (13 week rolling forecasts).
Cost Management – Assess your costs, especially overhead, and eliminate those that do not add value. Consult a CFO for a strategic cost cutting approach that does not damage the company.
Inventory Control – Ensure the inventory to revenue ratio is appropriate.
Improve Margins – Grow your margins by not only cutting costs but considering price increases as well.
Improve Operations – Make simple operational improvements for more profitability.
Return on Investments – Look at your ROI for Marketing and other initiatives to make wise investments and discontinue or restructure ones that are not adding value.
Online Reviews – For service-oriented companies, inspect your online reviews and ratings. According to Shyamal Parikh, CFO and Partner with SeatonHill, “people go to Google for everything, and if the number of reviews is low, they won’t buy, so customer reviews is an area where these companies can better themselves in this environment.”
You Need a Co-Pilot
Companies need an experienced financial partner to help navigate and guide owners and their leadership team. There must be a member of your leadership team who can readily answer the questions posed earlier. One who knows the sources for cash, including those within the organization when external sources or scarce. Someone who monitors the historical and current state of the firm, but whose primary focus is on the future, determining what scenarios the company might face and the best alternative responses. Such a partner is a Chief Financial Officer (CFO).
Not every company has a CFO, or even believes they need one to successfully lead them through growth periods and troublesome situations. CFOs are often thought of as highly accomplished accountants, or super controllers. This is a mischaracterization of the role, which is very different from that of a controller. A CFO, sometimes known as a strategic CFO, is a successful business leader with a deep financial background. A battle-tested individual with a wide transactional background spanning multiple industries. One with a total corporate perspective, able to effectively work with and assist all other functional leaders. While they are responsible for and direct the finance and accounting staff, CFOs do not need to perform the daily tasks of bill paying, billing and collections, closing the books, issuing financial statements and the myriad of other duties of the controller and accounting staff. CFOs provide strategy that impacts growth, success, valuation, and the bottom line.
For these reasons, even small to medium-sized companies need these highly experienced financial executives. Recruiting and hiring a full-time CFO is not necessary. Any company can engage a seasoned, strategic CFO on a permanent or part-time basis (a.k.a. a Fractional CFO) to consult, implement strategy, and overcome any challenges. In addition to mining the internal sources of cash when outside capital is difficult to obtain and expensive, a Fractional CFO can also develop and mentor their staff, work with other functional leaders to install or enhance operation processes, develop, prepare, and execute a successful exit plan for the company owners, and just be available when called on to help FLY THE PLANE.
SeatonHill Team
John Ball, CEO and Co-Founder, has served as CFO, COO, and CEO in a variety of industries. He was CEO and led the turnaround of the largest marine construction and repair company in Hawaii, whose primary customer was the U.S. Navy at Pearl Harbor. John also served as COO and CFO of a manufacturer of custom voice/data communication systems for control center environments in commercial and military markets. In his role as CFO of an electronic systems manufacturer, he was instrumental in bringing the company from near bankruptcy to a Forbes Up and Comer company in just three years.
Bob Arnold, Partner, is a senior financial executive with significant experience in managing strategic business and financial issues with a history of proven results in driving financial and operational performance in high growth companies. His vast experience with companies ranging from start-ups to multibillion dollar organizations spans a range of industries.
James Emmons, Partner, has 30 years of corporate finance and operations experience. He is a proven Chief Financial Officer who drives strategy and execution to achieve results. James’ expertise lies in transforming business operations by improving productivity, implementing financial controls, optimizing supply chains, and developing and executing strategic growth initiatives.
Mary Hoitt, Partner, is an accomplished executive with over 25 years in CFO and VP of Finance roles serving both public and private firms, from early-stage start-ups to global companies, with annual revenues over $300 million. Mary has restructured and turned around numerous distressed entities and has successfully raised more than $50 million in PIPE financing for several public companies and over $20 million of equity capital for various private firms.
Rick Ivey, Partner, is an experienced CFO with proven results in multiple industries. Rick has managed finance, accounting, IT, insurance, and risk management for multiple SeatonHill clients. He has assisted in the acquisition of numerous companies and worked with clients to develop appropriate borrowing levels, and then helped them to successfully negotiate with lending institutions to secure financing.
Gene Jones, Partner, is a seasoned finance executive who has served in various roles including Chief Financial Officer, Chief Operating Officer, Corporate Treasurer and Controller for public, private equity, venture funded, and start-up companies. For nearly three decades, he has helped firms of all sizes with financial management, IT, human resources, risk management, and technology services.
Jack McGovern, Area Managing Partner, is a Senior Executive with deep experience in healthcare services and technologies, Private Equity, FinTech, consulting, manufacturing, and technology sectors. He has demonstrated expertise in high growth and crisis management, with significant contributions on Corporate Boards. Jack is an outstanding leader with a proven track record of assembling, aligning and motivating talent.
Steve Morse, Area Managing Partner, is a seasoned, Enterprise Software Sales & Account Management Professional with extensive background in enterprise solutions sales within the Information Technology sector. Steve has a steller track record of generating sales, with multiple large transactions. He has vast experience in managing Fortune 1000 accounts that includes a blend of government, corporate, technology and energy sector companies.
Shyamal Parikh, Partner, is a highly accomplished financial executive with a strong history of directing fiscal activities in organizations from start-up to $16 billion in revenue. He has leadership experience in publicly held, private equity-backed, and closely held private companies in a variety of industries. Shyamal also has extensive international experience and currently sits on the board of a credit union.
Jody Puffett, Partner, is a highly results-oriented leader with over three decades of experience across multiple finance, actuarial, and technology disciplines. With a proven track record of positively influencing strategic and tactical organizational initiatives, she has partnered with stakeholders at all levels by building relationships based on accountability, reliability, and delivering results. Jody has also earned the 2018 Digital Insurance Women in Insurance Leadership Award and the 2017 Iowa Women’s Foundation Ovation Award.
Perry Trevithick, Partner has earned the distinction of being in the Top 2% of CFOs, as certified by Paro. His strengths include scaling profits, cash flow, entrepreneurial acumen, strategic planning, and implementation, and building outstanding cultures. Perry also has extensive IPO and M&A experience, with expertise in SOX, GAAP, IFRS, and management reporting.